Sprint - Nextel 2013 Annual Report Download - page 61

Table of Contents
statements. Forward
- looking statements are found throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations,
and elsewhere in this report. Readers are cautioned that other factors, although not listed above, could also materially affect our future performance and
operating results. The reader should not place undue reliance on forward
- looking statements, which speak only as of the date of this report. We are not
obligated to publicly release any revisions to forward
- looking statements to reflect events after the date of this report, including unforeseen events.
We are primarily exposed to the market risk associated with unfavorable movements in interest rates, foreign currencies, and equity prices. The risk
inherent in our market risk sensitive instruments and positions is the potential loss arising from adverse changes in those factors.
Interest Rate Risk
The communications industry is a capital
- intensive, technology - driven business. We are subject to interest rate risk primarily associated with our
borrowings. Interest rate risk is the risk that changes in interest rates could adversely affect earnings and cash flows. Specific interest rate risk includes: the risk
of increasing interest rates on variable rate debt and the risk of increasing interest rates for planned new fixed rate long
- term financings or refinancings.
Approximately 95% of our debt as of
December 31, 2013 was fixed - rate debt. While changes in interest rates impact the fair value of this debt, there is
no impact to earnings and cash flows because we intend to hold these obligations to maturity unless market and other conditions are favorable.
We perform interest rate sensitivity analyses on our variable rate debt. These analyses indicate that a one percentage point change in interest rates
would have an annual pre
- tax impact of $9 million on our consolidated statements of operations and cash flows for the year ended December 31, 2013 . We also
perform a sensitivity analysis on the fair market value of our outstanding debt. A 10% decline in market interest rates is estimated to result in a $1.2 billion
increase in the fair market value of our debt to $35.6 billion.
Foreign Currency Risk
We may enter into forward contracts and options in foreign currencies to reduce the impact of changes in foreign exchange rates. Our foreign
exchange risk management program focuses on reducing transaction exposure to optimize consolidated cash flow. We use foreign currency derivatives to hedge
our foreign currency exposure related to settlement of international telecommunications access charges and the operation of our international subsidiaries. The
dollar equivalent of our net foreign currency receivables from international settlements was less than $1 million and the net foreign currency receivables from
international operations was approximately $3 million as of
December 31, 2013 . The potential immediate pre - tax loss to us that would result from a hypothetical
10% change in foreign currency exchange rates based on these positions would be less than $1 million.
Equity Risk
We are exposed to market risk as it relates to changes in the market value of our investments. We invest in equity instruments of public companies
for operational and strategic business purposes. These securities are subject to significant fluctuations in fair market value due to volatility of the stock market
and industries in which the companies operate. These securities, which are classified in investments on the consolidated balance sheets, primarily include
equity method investments, such as available
- for - sale securities.
In certain business transactions, we are granted warrants to purchase the securities of other companies at fixed rates. These warrants are
supplemental to the terms of the business transaction and are not designated as hedging instruments.
The consolidated financial statements required by this item begin on page F
- 1 of this annual report on Form 10 - K and are incorporated herein by
reference. The financial statements of Clearwire up through the date of acquisition, as required under Regulation S
- X, are included in Item 15 of this annual
report on Form 10
- K and incorporated herein by reference.
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Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data